India’s GDP Grows At 7.7% In March Quarter As Recovery Strengthens

India’s economy expanded at its fastest pace since demonetisation as government spending continues to drive the recovery.

GDP rose at 7.7 percent in the fourth quarter of 2017-18 compared with 6.1 percent in the same period last year, and a revised 7 percent in the quarter ended December, according to data released by the Central Statistics Office today. A Bloomberg poll of economists had pegged the growth at 7.4 percent.

For the full financial year, GDP grew at 6.7 percent compared with 7.1 percent in the previous year. Gross value added growth, which strips out the impact of indirect taxes and subsidies, stood at 7.6 percent in the January-March quarter and at 6.5 percent for the full year.

“The economy is certainly recovering. But if one breaks the numbers a little, a lot of it is essentially being driven by public expenditure,” Pronab Sen, former chief statistician of India, said. “That’s a good thing because we needed a certain bit of priming.”

Asia’s third-largest economy is recovering from the twin shocks of demonetisation and the goods and services tax. The 6.7 percent growth in 2017-18 was the worst since Prime Minister Narendra Modi was voted to power. Even with improving growth, problems remain aplenty as Modi enters the last year of his term. Surging crude oil prices, trade tensions between U.S. and China, and a rout in the emerging markets have clouded the economic outlook. Moody’s Investors Service cut the nation’s growth forecast due to downside risks.

Sectorally, the rebound was led by the manufacturing and construction sectors, aided partly by the base effect as demonetisation had hurt activity in these sectors.

“Definitely the base effect has also played a role. Construction had seen a tremendous contraction in the corresponding quarter last year,” said Shubada Rao, chief economist at Yes Bank. “But the economy and the momentum is picking up and that’s positive news to carry forward.”

“Last three quarters have been relatively positive. The onus has been entirely on the government’s side to revive the capex.” – Shubada Rao, Chief Economist, Yes Bank

According to Rao, while construction and government-linked sectors were expected to do the “heavy lifting”, agricultural growth was a surprise.